India Offers $1.4 Billion In Subsidies To Support The Domestic Electric Vehicle Industry

Passengers travel in an e-rickshaw along a road in New Delhi, India, on September 22, 2018. The nation is home to about 1.5 million battery-powered, three-wheeled rickshaws–a fleet bigger than the total number of electric passenger cars sold in China since 2011. (Photo: Prashanth Vishwanathan/Bloomberg)

To encourage the growth of the electric vehicle (EV) industry in India, the government has developed a two-pronged strategy aimed at both buyers and manufacturers: $1.4 billion in subsidies are to be offered, followed by a hike on import tariffs within the next year to spur domestic companies to build the vehicles.

The new policy, which was cleared by the cabinet late last month but the details of which were not available till now, kicks in with the new financial year in April. The scheme promises to lay out $1.4 billion in subsidies over three years for electric buses, three-wheelers, four-wheelers that are registered as commercial vehicles as well as private motorbikes and scooters.

Unlike other countries where the incentives for EVs has been focused on personal vehicles like those produced by Tesla, India, where less than four million cars are sold annually, is instead focusing on its public transport system. Hence the primary aim of the policy on subsidies for buses and three-wheelers as well as two-wheelers, a hugely popular, and affordable, mode of transport.

While EVs are still a negligible component of the country's current transport system, several Indian companies, including Mahindra & Mahindra, Tata Motors, Ashok Leyland among others have begun making electric cars, autorickshaws and buses (as well as two-wheelers) that run on lithium-ion batteries.

The latest policy is meant to boost that industry.

Of the $1.4 billion, about $1.2 billion has been earmarked for subsidies, $140 million for charging infrastructure and some $5 million for administrative expenses and advertising. The balance $50 million is money that was committed in the existing policy which expires March, 2019.

Of this, subsidies are available for up to one million two-wheelers, 500,000 three-wheelers, 35,000 cars, 20,000 strong hybrids (vehicles that can run on petrol, electricity or both) and 7,090 buses. To ensure that the subsidies are not being used for high-end vehicles like Teslas (not that it is currently available in India), the policy stipulates a price cap for each category of vehicles. For instance, cars that cost more than $21,000 are not eligible for the subsidies.

Subsidies are also available for plug-in hybrids and strong hybrid four-wheelers and will be capped at 40% for buses and 20% for all other vehicles.

Since the cost of batteries is what makes EVs prohibitively expensive for most consumers, the policy offers subsidies based on battery capacity–$140 per
per kilowatt-hour for all vehicles excluding buses. The latter will get a subsidy double that amount.

State governments, too, are expected to offer a combination of fiscal and non-fiscal incentives to further encourage the adoption of EVs. Non-fiscal incentives include a waiver or reduction in road taxes, toll tax, parking fees, registration charges, among others.

As part of its push to encourage local manufacturing, the government has also laid out a phased manufacturing roadmap. "The intention is to substantially increase value addition and capacity building within the country," according to a statement from the government.

Under this, for instance, customs duty on imported buses and trucks will be doubled to 50% from April 2020, while those on passenger vehicles and three-wheelers that are imported as partially assembled units will be doubled to 30% from the same period. Similarly, a 15% tariff will be imposed on lithium-ion cells and battery packs as well as parts intended for use in manufacturing EVs including chargers and electric compressors from April 2021.